A few weeks ago, we looked at a bull put spread trade on Datadog, which worked out well. So today we're looking at a similar idea on Marvell Technology — specifically another bull put spread in the options of MRVL stock.
Traders willing to bet that MRVL stock will stay above 60 for the next five weeks could look at a bull put spread that would expire March 15. This type of trade will profit if MRVL stock trades sideways or higher and even sometimes if it trades slightly lower.
As a reminder, a bull put spread is a defined-risk strategy, so you always know the worst-case scenario in advance.
MRVL Stock Today: The Setup
With MRVL stock trading at 71.94 during Thursday afternoon trading, and if we use the March 15 expiration, based on recent trading we can sell a 60-strike put option and then buy a 57.50 put for a total net gain of around $0.42 per set of contracts, or $42. Selling this spread would generate roughly $42 in premium with a maximum risk of $208.
If the spread expires worthless, we would bag a 20% return in five weeks — provided MRVL stock holds above 60 at expiration.
Risk Vs. Reward
The maximum loss would occur if MRVL stock closes below 57.50 on March 15. In this situation, the premium seller would lose $208 on the trade.
Also, the break-even point for the trade stands at 59.58. Calculate it as 60 less the $0.42 option premium per contract. I would set a stop loss if the loss is equal to the amount of premium received, which in this case would be $42.
Sticking to this stop-loss level will help avoid large losses if the trade goes south.
Mostly Top Notch Ratings
According to IBD Stock Checkup, MRVL stock ranks No. 7 in its group. It shows a Composite Rating of 91, an EPS Rating of 57 and a Relative Strength Rating of 94.
Marvell is slated to report January fiscal fourth-quarter results on March 27.
Please remember that options are risky. Investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
